Hart Venture Capital - Quantitative Analyses

Hart Venture Capital (HVC) specializes in providing venture capital for software development and internet applications. Currently HVC has two investment opportunities: (1) Security Systems, a firm that needs additional capital to develop an Internet security software package; (2) Market analysis, a market research company that needs additional capital to develop a software package for conducting customer satisfaction surveys. In exchange for Security systems stock, the firm has asked HVC to provide $600,000 in year 1, $600,000 in year 2, and $250,000 in year 3 over the coming three-year period. In exchange for their stock, Market Analysis has asked HVC to provide $500,000 in year 1, $350,000 in year 2, and $400,000 in year 3 over the same three-year period. HVC believes that both investment opportunities are worth pursuing. However, because of their investments, they are willing to commit at most $800,000 for both projects in the first year, at most $700,000 in the second year, and $500,00 in the third year.

HVC’s financial analysis team reviewed both projects and recommended that the company’s objective should be to maximize the net present value of the total investment in Security Systems and Market Analysis. The net present value takes into account the estimated value of the stock at the end of the three year period as well as the capital outflows that are necessary during each of the three years. Using an 8% rate of return, HVC’s financial analysis team estimates that 100 % funding of the Security Systems project has a net present value of $1,800,000 and 100% funding of the Market Analysis project has a net present value of $1,600,000.

HVC has option to fund any percentage of the Security systems and Market Analysis projects. For example, if HVC decides to fund 40% of the security Systems project, investments of 0.40($600,000) = $ 240,000 would be required in year 1, 0.40($600,000) = $ 240,000 would be required in year 2, 0.40($250,000) = $ 100,000 would be required in year 3. In this case, the net present value of the Security systems project would be 0.40($1,800,000) = $720,000. The investment amounts and the net present value for partial funding of the Market Analysis project would be computed in the same manner.

Managerial Report

Perform an analysis of HVC’s investment problem and prepare a report that presents your findings and recommendations. Include ( but do not limit your discussion to) consideration of the following items:

1. What is the recommended percentage of each project that HVC should fund and the net present value of the total investment?

2. What capital allocation plan for Security Systems and Market Analysis for the coming three year period and the total HVC investment each year would you recommend?

3. What effect, if any would HVC’s willingness to commit an additional $100,000 during the first year have on the recommended percentage of each project that HVC should fund?

4. What would the capital allocation plan look like if an additional $100,000 is made available?

5. What is your recommendation as to whether HVC should commit the additional $100,000 in the first year?

Provide model details and relevant computer output in the report.

Assignment 2 - Case 2

Planning an Advertising Campaign

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In the meeting with the Flamingo’s management team, YC consultants provided the following information about the industry exposure effectiveness rating per ad., their estimate of the number of potential new customers reached per ad., and the cost for each...

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HartVentureCapital (HVC) specializes in providing venturecapital for software development and Internet applications. Currently HVC has two investment opportunities: (1) Security Systems, a firm that needs additional capital to develop an Internet security software package, and (2) Market Analysis, a market research company that needs additional capital to develop a software package for conducting customer satisfaction surveys. In exchange for the Security Systems stock, the firm has asked HVC to provide $600,000 in year 1, $600,000 in year 2, and $350,000 in year 3. In exchange of their stock, Market Analysis has asked HVC to provide $500,000 in year 1, $350,000 in year 2, and $400,000 in year 3. HVC believes that both investment opportunities are worth pursuing. However, because of other investments, they are willing to commit at most $800,000 for both projects in the first year, at most $700,000 in the second year, and $500,000 in the third year.
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After performing an analysis of HVC’s investment problem, I found that the company’s objective was to maximize the net present value of the total investment in Security Systems and Market Analysis. To find the maximum net present value and analyze the numbers, I set up the model shown below.
Max 1,800,000*SS + 1,600,000*MA
s.t. 600,000*SS + 500,000*MA ≤ 800,000
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250,000*SS + 400,000*MA ≤ 500,000
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HartVentureCapital (HVC) specializes in providing venturecapital for software development and internet applications. Currently HVC has two investment opportunities:
1. Security Systems
2. Market Analysis
They have reviewed both the projects and HVC’s objective is to maximize the net present value of the total investment. HVC has the option to invest in both the projects in a certain ratio or invest in either of the two; whichever meets the objective of maximizing net present value.
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The dilemma that HVC faces is to either invest in both the projects in a certain proportion or invest in any of the two. HVC believes that both of the investment opportunities are worth pursuing. Therefore, the alternatives HVC has are:
Make proportionate investments in both of the alternatives
Invest completely in security systems or market analysis
Causes of the Problem
HVC has two firms to invest with:
1. Security Systems: They need additional capital to develop an internet security software package.
2. Market Analysis: They need additional capital to develop a software package for conducting customer satisfaction surveys.
Company
Year 1
Year 2
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$600,000
$250,000
Market Analysis
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$350,000
$400,000
HVC
$800,000
$700,000
$500,000
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Case study 2
HartVentureCapital (HVC) specializes in providing venturecapital for software development and Internet applications. Currently HVC has two investment opportunities: (1) Security Systems, a firm that needs additional capital to develop an Internet security software package, and (2) Market Analysis, a market research company that needs additional capital to develop a software package for conducting customer satisfaction surveys. In exchange for Security Systems stock, the firm has asked HVC to provide $600,000 in year 1, $600,000 in year 2, and $250,000 in year 3 over the coming three-year period. In exchange for their stock, Market Analysis has asked HVC to provide $500,000 in year 1, $350,000 in year 2, and $400,000 in year 3 over the same three-year period. HVC believes that both investment opportunities are worth pursuing. However, because of other investments, they are willing to commit at most
$800,000 for both projects in the first year, at most $700,000 in the second year, and $500,000 in the third year. HVC’s financial analysis team reviewed both projects and recommended that the company’s objective should be to maximize the net present value of the total investment in Security Systems and Market Analysis. The net present value takes into account the estimated value of the stock at the end of the...